Wunderlich is lowering their estimates, rating, and target for Tesla (TSLA) on likely 3Q12 production cuts for sales of the Model S. The shares, which recently reached $36, have fallen on both profit taking and the growing realization that 3Q12 estimates are at risk, with production likely coming in at the low end of the range. While the company is sticking to its 5,000 unit forecast for 2012, how it gets there becomes a second issue for it to resolve. While Wunderlich believes that TSLA is doing everything right from a business perspective and has demonstrated superiority of design, they believe the market may pause to see how it handles the execution, allowing the shares to retrace the year's gains.

Production cut to 500 units in 3Q12 and some pushouts. While initially saying that it would produce and sell 1,000 cars in 3Q12, TSLA now says it will certainly be 500 cars. All the Street estimates assume 1,000 cars and so there will be inevitable cuts to estimates. Firm notes they also heard that there are some pushouts of deliveries and this would be consistent with production headed for the lower estimate, but they have not been able to verify this first hand.

Why the production cuts? Tesla wants to be sure the cars are right and apparently they are not in a position to ramp to get to 1,000 units this quarter. From Wunderlich's own due diligence, they don't believe there is any shortage of components, so it could be as "simple" as just getting the hang of lining up all the body panels, which is part art. Could it be something more serious? If it were more serious, they believe sales would have been delayed - but who knows?

Raises issues for 4Q12. Tesla is still sticking to its 5,000 unit full-year production forecast and this would imply 4,500 units in 4Q12, up from 4,000. How it gets to this higher volume when it is having issues now makes it a bit of a wait-and-see story and, in this market, there isn't much patience for waiting! So while they believe Tesla has all the design and most of the execution right, they need to see how the execution issue is resolved.

Notablecalls: TSLA is having production issues, it appears. This is going to hurt the stock. Maybe as bad as -10% today.